EGBs-GILTS CASH CLOSE: BTP Spreads Tighten Further

Gilts underperformed Bunds Wednesday, with follow through from the prior session's above-expected US inflation data and heavy supply helping drive core FI weakness.

• Data was fairly limited, with the session's highlight - UK activity data - in line with expectations, and a Eurozone IP miss shrugged off.
• Focus was moreso on heavy auction supply (BTPs, Bund, PGBs, and Gilt linkers among others).
• The outcome of the ECB’s operational framework review brought no notable hawkish surprises, and pointed to slightly easier refinancing conditions versus most expectations.
• The latter dynamic helped periphery EGBs outperform, with 10Y BTP spreads compressing further to the tightest to Bunds in 2.5 years.
• The UK curve bear steepened on the day, with the belly outperforming on a weak German curve.
• Thursday sees multiple ECB speakers (including Schnabel and Knot), alongside largely 2nd tier European data (including final Spanish inflation).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 4bps at 2.887%, 5-Yr is up 3.3bps at 2.392%, 10-Yr is up 3.6bps at 2.366%, and 30-Yr is up 5bps at 2.522%.
• UK: The 2-Yr yield is up 5.3bps at 4.273%, 5-Yr is up 7bps at 3.941%, 10-Yr is up 7.5bps at 4.021%, and 30-Yr is up 6.4bps at 4.467%.
• Italian BTP spread down 5bps at 122.9bps / Spanish down 1.6bps at 79.5bps